UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED AMENDED REPORT
OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-05379
Name of Registrant: Royce Focus Trust, Inc.
Address of Registrant: 1414 Avenue of the Americas
New York, NY 10019
Name and address of agent for service: John E. Denneen, Esquire
1414 Avenue of the Americas
New York, NY 10019
Registrant's telephone number, including area code: (212) 486-1445
Date of fiscal year end: December 31
Date of reporting period: January 1, 2003 - June 30, 2003
ITEM 1: REPORTS TO SHAREHOLDERS
ROYCE FOCUS TRUST, INC.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS JUNE 30, 2003 (UNAUDITED)
--------------------------------------------------------------------------------
COMMON STOCKS - 75.3%
SHARES VALUE
------ -----
CONSUMER PRODUCTS - 6.2%
Sports and Recreation - 3.6%
Callaway Golf 100,000 $ 1,322,000
+WINNEBAGO INDUSTRIES (c) 50,000 1,895,000
---------------
3,217,000
---------------
Other Consumer Products - 2.6%
Oakley (a) 75,000 882,750
+YANKEE CANDLE COMPANY (a) 60,000 1,393,200
---------------
2,275,950
---------------
TOTAL (Cost $4,305,372) 5,492,950
===============
CONSUMER SERVICES - 5.2%
Direct Marketing - 2.4%
NU SKIN ENTERPRISES CL. A 200,000 2,090,000
---------------
Retail Stores - 2.8%
Big Lots (a) 89,400 1,344,576
Charming Shoppes (a,c) 230,000 1,143,100
---------------
2,487,676
---------------
TOTAL (Cost $3,614,159) 4,577,676
===============
FINANCIAL INTERMEDIARIES - 9.4%
Insurance - 5.1%
ProAssurance Corporation (a) 47,155 1,272,713
WHITE MOUNTAINS INSURANCE GROUP (c) 4,000 1,580,000
ZENITH NATIONAL INSURANCE 59,000 1,681,500
---------------
4,534,213
---------------
Securities Brokers - 1.5%
E*TRADE GROUP (a) 150,000 1,275,000
---------------
Other Financial Intermediaries - 2.8%
+TSX GROUP 120,000 2,434,077
---------------
TOTAL (Cost $4,622,704) 8,243,290
===============
FINANCIAL SERVICES - 1.7%
Information and Processing - 1.1%
+eFunds Corporation (a) 85,000 980,050
---------------
Investment Management - 0.6%
U.S. Global Investors Cl. A (a,c) 295,605 546,869
---------------
TOTAL (Cost $1,566,006) 1,526,919
===============
HEALTH - 10.5%
Drugs and Biotech - 8.9%
Antigenics (a,c) 80,000 921,600
+Durect Corporation (a,c) 220,000 530,200
Emisphere Technologies (a) 200,000 720,000
ENDO PHARMACEUTICALS HOLDINGS (a) 100,000 1,692,000
Lexicon Genetics (a) 200,000 1,342,000
Perrigo Company 87,300 1,365,372
VIVUS (a,c) 250,000 1,285,000
---------------
7,856,172
---------------
Personal Care - 1.6%
OCULAR SCIENCES (a) 70,000 1,389,500
---------------
TOTAL (Cost $7,522,624) 9,245,672
===============
INDUSTRIAL PRODUCTS - 9.1%
Building Systems and Components - 2.9%
SIMPSON MANUFACTURING (a) 70,000 2,562,000
---------------
Construction Materials - 2.7%
FLORIDA ROCK INDUSTRIES 58,350 2,408,688
---------------
Machinery - 3.5%
LINCOLN ELECTRIC HOLDINGS 99,800 2,036,918
Woodward Governor 24,400 1,049,200
---------------
3,086,118
---------------
TOTAL (Cost $4,617,941) 8,056,806
===============
INDUSTRIAL SERVICES - 7.2%
Commercial Services - 5.3%
Carlisle Holdings (a) 400,000 1,320,000
Cornell Companies (a) 75,000 1,135,500
Covance (a) 50,000 905,000
+West Corporation (a) 50,000 1,332,500
---------------
4,693,000
---------------
Engineering and Construction - 1.9%
DYCOM INDUSTRIES (a) 100,000 1,630,000
---------------
TOTAL (Cost $3,871,542) 6,323,000
===============
NATURAL RESOURCES - 12.2%
Energy Services - 2.7%
+Ensign Resource Service Group 53,000 789,674
INPUT/OUTPUT (a) 300,000 1,614,000
---------------
2,403,674
---------------
Oil and Gas - 1.6%
TOM BROWN (a) 50,000 1,389,500
---------------
Precious Metals and Mining - 7.9%
AngloGold ADR b 25,000 797,500
+APEX SILVER MINES (a) 100,000 1,475,000
Glamis Gold (a) 125,000 1,433,750
GOLDCORP 180,000 2,160,000
+Meridian Gold (a) 99,800 1,146,702
---------------
7,012,952
---------------
TOTAL (Cost $8,749,421) 10,806,126
===============
TECHNOLOGY - 13.8%
Components and Systems - 1.6%
REMEC (a) 200,000 1,392,000
---------------
Distribution - 1.2%
Richardson Electronics 129,000 1,044,900
---------------
Internet Software and Services - 1.6%
+Overstock.com (a,c) 100,000 1,451,000
---------------
IT Services - 3.1%
PEROT SYSTEMS CL. A (a) 140,500 1,596,080
Syntel (a) 70,000 1,101,100
---------------
2,697,180
---------------
Semiconductors and Equipment - 1.9%
Exar Corporation (a) 50,000 791,500
+ParthusCeva (a,c) 109,600 893,240
---------------
1,684,740
---------------
Software - 1.6%
Lightspan (a) 750,000 508,500
Transaction Systems Architects Cl. A (a) 100,000 896,000
---------------
1,404,500
---------------
42 | THE ROYCE FUNDS SEMIANNUAL REPORT 2003
ROYCE FOCUS TRUST, INC.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS JUNE 30, 2003 (UNAUDITED)
--------------------------------------------------------------------------------
SHARES VALUE
------ -----
TECHNOLOGY (CONTINUED)
Telecommunication - 2.8%
Anaren (a,c) 140,000 $ 1,311,800
+ViaSat (a,c) 83,700 1,200,258
---------------
2,512,058
---------------
TOTAL (Cost $10,466,402) 12,186,378
===============
TOTAL COMMON STOCKS
(Cost $49,336,171) 66,458,817
===============
PRINCIPAL
AMOUNT
------
CORPORATE BONDS - 3.3%
E*TRADE GROUP 6.00%
Conv. Sub. Note due 2/1/07 $3,000,000 2,940,000
---------------
TOTAL CORPORATE BONDS
(Cost $2,226,761) 2,940,000
GOVERNMENT BONDS - 5.7%
NEW ZEALAND 6.50%, DUE 2/15/06 8,250,000 5,025,385
---------------
TOTAL GOVERNMENT BONDS
(Cost $4,910,697) 5,025,385
===============
PRINCIPAL
AMOUNT
------
U.S. TREASURY OBLIGATIONS - 6.1%
U.S. Treasury Notes
7.25%, due 8/15/04 5,000,000 $5,344,725
---------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $5,033,324) 5,344,725
===============
REPURCHASE AGREEMENT - 9.6%
State Street Bank & Trust Company,
0.30% dated 6/30/03, due 7/1/03,
maturity value $8,442,070
(collateralized by U.S. Treasury Bonds,
6.375% due 8/15/27, valued at $8,613,909)
(Cost $8,442,000) 8,442,000
===============
TOTAL INVESTMENTS - 100.0%
(Cost $69,948,953) 88,210,927
CASH AND OTHER ASSETS
LESS LIABILITIES 519,568
PREFERRED STOCK (20,000,000)
---------------
NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS $ 68,730,495
===============
--------------------------------------------------------------------------------
(a) Non-income producing.
(b) American Depository Receipt.
(c) A portion of these securities were on loan at June 30, 2003. Total market
value of loaned securities at June 30, 2003 was $3,305,289.
+ New additions in 2003.
BOLD INDICATES THE FUND'S LARGEST 20 EQUITY HOLDINGS IN TERMS OF JUNE 30,
2003 MARKET VALUE.
INCOME TAX INFORMATION: The cost of total investments for Federal income tax
purposes was $70,316,034. At June 30, 2003, net unrealized appreciation for all
securities was $17,894,893, consisting of aggregate gross unrealized
appreciation of $19,366,001 and aggregate gross unrealized depreciation of
$1,471,108. The primary differences in book and tax basis cost is the timing of
the recognition of losses on securities sold and amortization of discount for
book and tax purposes.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMIANNUAL REPORT 2003 | 43
ROYCE FOCUS TRUST, INC.
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 2003 (UNAUDITED)
--------------------------------------------------------------------------------
ASSETS:
Investments at value (identified cost $61,506,953) $79,768,927
Repurchase agreement (at cost and value) 8,442,000
Cash 517
Collateral from brokers on securities loaned 3,403,611
Receivable for investments sold 284,594
Receivable for dividends and interest 370,313
Prepaid expenses 11,545
--------------------------------------------------------------------------------
Total Assets 92,281,507
--------------------------------------------------------------------------------
LIABILITIES:
Payable for collateral on securities loaned 3,403,611
Payable for investment advisory fee 56,720
Preferred dividends accrued but not yet declared 33,112
Accrued expenses 57,569
--------------------------------------------------------------------------------
Total Liabilities 3,551,012
--------------------------------------------------------------------------------
PREFERRED STOCK:
7.45% Cumulative Preferred Stock - $0.001 par value,
$25 liquidation value per share; 800,000 shares outstanding 20,000,000
--------------------------------------------------------------------------------
Total Preferred Stock 20,000,000
--------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS $68,730,495
--------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:
Par value of Common Stock - $0.001 per share; 9,241,025
shares outstanding (100,000,000 shares authorized) $ 9,241
Additional paid-in capital 45,713,027
Undistributed net investment income 165,852
Accumulated net realized gain on investments 5,356,492
Net unrealized appreciation on investments 18,263,995
Quarterly and accrued distributions (778,112)
--------------------------------------------------------------------------------
Net Assets applicable to Common Stockholders
(net asset value per share - $7.44) $68,730,495
================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
44 | THE ROYCE FUNDS SEMIANNUAL REPORT 2003
ROYCE FOCUS TRUST, INC.
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED)
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Income:
Interest $ 401,058
Dividends 197,770
--------------------------------------------------------------------------------
Total income 598,828
--------------------------------------------------------------------------------
Expenses:
Investment advisory fees 392,077
Custody and transfer agent fees 38,899
Stockholder reports 26,154
Professional fees 25,830
Directors' fees 15,771
Administrative and office facilities expenses 6,178
Other expenses 27,244
--------------------------------------------------------------------------------
Total expenses 532,153
Fees waived by investment adviser (99,177)
--------------------------------------------------------------------------------
Net expenses 432,976
--------------------------------------------------------------------------------
Net investment income 165,852
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 4,290,829
Net change in unrealized appreciation on investments 7,062,848
--------------------------------------------------------------------------------
Net realized and unrealized gain on investments 11,353,677
--------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM INVESTMENT OPERATIONS 11,519,529
--------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS (745,000)
--------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS
RESULTING FROM INVESTMENT OPERATIONS $10,774,529
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
Six months ended Year ended
June 30, 2003 December 31,
(unaudited) 2002
---------------- -----------
INVESTMENT OPERATIONS:
Net investment income (loss) $ 165,852 $ (103,396)
Net realized gain on investments 4,290,829 1,317,847
Net change in unrealized appreciation
on investments 7,062,848 (8,047,125)
--------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from investment operations 11,519,529 (6,832,674)
--------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income - (272,620)
Net realized gain on investments - (1,217,380)
Quarterly distributions* (745,000) -
--------------------------------------------------------------------------------
Total distributions to
Preferred Stockholders (745,000) (1,490,000)
--------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
APPLICABLE TO COMMON STOCKHOLDERS RESULTING
FROM INVESTMENT OPERATIONS 10,774,529 (8,322,674)
--------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income - (150,865)
Net realized gain on investments - (673,654)
--------------------------------------------------------------------------------
Total distributions to Common
Stockholders - (824,519)
--------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
Reinvestment of distributions to
Common Stockholders - 449,516
--------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
APPLICABLE TO COMMON STOCKHOLDERS 10,774,529 (8,697,677)
NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:
Beginning of period 57,955,966 66,653,643
--------------------------------------------------------------------------------
End of period (including undistributed
net investment income of $165,852
in 2003) $68,730,495 $57,955,966
================================================================================
*To be allocated to net investment income and capital gains at year-end.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMIANNUAL REPORT 2003 | 45
ROYCE FOCUS TRUST, INC.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
This table is presented to show selected data for a share of Common Stock
outstanding throughout each period, and to assist stockholders in evaluating the
Fund's performance for the periods presented.
Six months ended Years ended December 31,
June 30, 2003 --------------------------------------------
(unaudited) 2002 2001 2000 1999 1998
----------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $6.27 $7.28 $6.77 $5.94 $5.63 $6.04
----------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS:
Net investment income (loss) 0.02 (0.01) 0.05 0.12 0.08 0.12
Net realized and unrealized
gain (loss) on investments 1.23 (0.74) 0.79 1.26 0.58 (0.35)
----------------------------------------------------------------------------------------------------
Total investment operations 1.25 (0.75) 0.84 1.38 0.66 (0.23)
----------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income - (0.03) (0.04) (0.03) (0.01) (0.16)
Net realized gain on investments - (0.13) (0.13) (0.14) (0.17) (0.02)
Quarterly distributions* (0.08) - - - - -
----------------------------------------------------------------------------------------------------
Total distributions to
Preferred Stockholders (0.08) (0.16) (0.17) (0.17) (0.18) (0.18)
----------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
APPLICABLE TO COMMON STOCKHOLDERS
RESULTING FROM INVESTMENT OPERATIONS 1.17 (0.91) 0.67 1.21 0.48 (0.41)
----------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income - (0.02) (0.03) (0.06) (0.01) -
Net realized gain on investments - (0.07) (0.11) (0.28) (0.14) -
----------------------------------------------------------------------------------------------------
Total distributions to
Common Stockholders - (0.09) (0.14) (0.34) (0.15) -
----------------------------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
Effect of reinvestment of
distributions by
Common Stockholders - (0.01) (0.02) (0.04) (0.02) -
----------------------------------------------------------------------------------------------------
Total capital stock transactions - (0.01) (0.02) (0.04) (0.02) -
----------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $7.44 $6.27 $7.28 $6.77 $5.94 $5.63
----------------------------------------------------------------------------------------------------
MARKET VALUE, END OF PERIOD $6.77 $5.56 $6.65 $5.69 $4.72 $4.88
----------------------------------------------------------------------------------------------------
TOTAL RETURN (a):
Market Value 21.8%*** (15.1)% 19.7% 27.9% (0.3)% (3.7)%
Net Asset Value 18.7%*** (12.5)% 10.0% 20.9% 8.7% (6.8)%
RATIOS BASED ON AVERAGE NET ASSETS
APPLICABLE TO COMMON STOCKHOLDERS:
Total expenses (b,c) 1.48%** 1.88% 1.47% 1.44% 1.51% 1.62%
Management fee expense 1.00%** 1.13% 1.11% 1.00% 1.00% 1.14%
Other operating expenses 0.48%** 0.75% 0.36% 0.44% 0.51% 0.48%
Net investment income (loss) 0.57%** (0.16)% 0.70% 1.93% 1.47% 1.95%
SUPPLEMENTAL DATA:
Net Assets Applicable to Common
Stockholders, End of Period
(in thousands) $68,730 $57,956 $66,654 $60,933 $51,003 $47,457
Liquidation Value of Preferred Stock,
End of Period (in thousands) $20,000 $20,000 $20,000 $20,000 $20,000 $20,000
Portfolio Turnover Rate 34% 61% 54% 69% 60% 90%
PREFERRED STOCK:
Total shares outstanding 800,000 800,000 800,000 800,000 800,000 800,000
Asset coverage per share $110.91 $97.44 $108.32 $101.17 $88.75 $84.32
Liquidation preference per share $25.00 $25.00 $25.00 $25.00 $25.00 $25.00
Average market value per share (d) $25.62 $25.64 $25.09 $22.23 $24.00 $25.16
----------------------------------------------------------------------------------------------------
(a) The Market Value Total Return is calculated assuming a purchase of Common
Stock on the opening of the first business day and a sale on the closing of
the last business day of each period reported. Dividends and distributions,
if any, are assumed for the purposes of this calculation to be reinvested at
prices obtained under the Fund's Distribution Reinvestment and Cash Purchase
Plan. Net Asset Value Total Return is calculated on the same basis, except
that the Fund's net asset value is used on the purchase and sale dates
instead of market value.
(b) Expense ratios based on total average net assets including liquidation
value of Preferred Stock were 1.10%, 1.43%, 1.11%, 1.05%, 1.06% and 1.16%
for the periods ended June 30, 2003 and December 31, 2002, 2001, 2000, 1999
and 1998, respectively.
(c) Expense ratios based on average net assets applicable to Common Stockholders
before waiver of fees by the investment adviser would have been 1.82%,
2.06%, 1.69%, 1.81%, 1.93% and 1.88% for the periods ended June 30, 2003 and
December 31, 2002, 2001, 2000, 1999 and 1998, respectively.
(d) The average of month-end market values during the period.
* To be allocated to net investment income and capital gains at year-end.
** Annualized.
*** Not annualized.
46 | THE ROYCE FUNDS SEMIANNUAL REPORT 2003
ROYCE FOCUS TRUST, INC.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Royce Focus Trust, Inc. (the "Fund") is a diversified closed-end
investment company. The Fund commenced operations on March 2, 1988 and Royce
& Associates, LLC ("Royce") assumed investment management responsibility for
the Fund on November 1, 1996. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements,
and the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
VALUATION OF INVESTMENTS:
Securities are valued as of the close of trading on the New York Stock
Exchange (generally 4:00 p.m. Eastern Time) on the valuation date. Securities
listed on an exchange or the Nasdaq National Market System (NMS) are valued
at their last reported sales price or official closing price taken from the
primary market in which each security trades or, if no sale is reported for
such day, at their bid price for exchange-listed securities and at the
average of their bid and asked prices for Nasdaq NMS securities. Other
over-the-counter securities for which market quotations are readily available
are valued at their bid price. Securities for which market quotations are not
readily available are valued at their fair value under procedures established
by the Fund's Board of Directors. Bonds and other fixed income securities may
be valued by reference to other securities with comparable ratings, interest
rates and maturities, using established independent pricing services.
INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME:
Investment transactions are accounted for on the trade date. Dividend
income is recorded on the ex-dividend date and any non-cash dividend income
is recorded at the fair market value of the securities received. Interest
income is recorded on the accrual basis. Realized gains and losses from
investment transactions are determined on the basis of identified cost for
book and tax purposes.
EXPENSES:
The Fund incurs direct and indirect expenses. Expenses directly
attributable to the Fund are charged to the Fund's operations, while expenses
applicable to more than one of the Royce Funds are allocated in an equitable
manner. Allocated personnel and occupancy costs related to The Royce Funds
are included in administrative and office facilities expenses. The Fund has
adopted a deferred fee agreement that allows the Fund's Directors to defer
the receipt of all or a portion of Directors' Fees otherwise payable. The
deferred fees are invested in certain Royce Funds until distributed in
accordance with the agreement.
TAXES:
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the extent
that it distributes substantially all of its taxable income for its fiscal
year. The Schedule of Investments includes information regarding income taxes
under the caption "Income Tax Information".
DISTRIBUTIONS:
Distributions to Common Stockholders are recorded on the ex-dividend date
and paid annually in December. Distributions to Preferred Stockholders are
recorded on an accrual basis and paid quarterly. Distributions are determined
in accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. Permanent book
and tax basis differences relating to stockholder distributions will result
in reclassifications within the capital accounts. Undistributed net
investment income may include temporary book and tax basis differences, which
will reverse in a subsequent period. Any taxable income or gain remaining
undistributed at fiscal year end is distributed in the following year.
REPURCHASE AGREEMENTS:
The Fund enters into repurchase agreements with respect to its portfolio
securities solely with State Street Bank and Trust Company ("SSB&T"), the
custodian of its assets. The Fund restricts repurchase agreements to
maturities of no more than seven days. Securities pledged as collateral for
repurchase agreements, which are held by SSB&T until maturity of the
repurchase agreements, are marked-to-market daily and maintained at a value
at least equal to the principal amount of the repurchase agreement (including
accrued interest). Repurchase agreements could involve certain risks in the
event of default or insolvency of SSB&T, including possible delays or
restrictions upon the ability of the Fund to dispose of the underlying
securities.
SECURITIES LENDING:
The Fund loans securities to qualified institutional investors for the
purpose of realizing additional income. This income is included in interest
income. Collateral on all securities loaned for the Fund is accepted in cash
and is invested temporarily, typically, and specifically at June 30, 2003, in
a registered money market fund, by the custodian. The collateral is equal to
at least 100% of the current market value of the loaned securities.
THE ROYCE FUNDS SEMIANNUAL REPORT 2003 | 47
ROYCE FOCUS TRUST, INC.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
CAPITAL STOCK:
The Fund currently has 800,000 shares of 7.45% Cumulative Preferred Stock
outstanding. The stock has a liquidation preference of $25.00 per share.
Under the Investment Company Act of 1940, the Fund is required to
maintain an asset coverage of at least 200% for the Preferred Stock. In
addition, pursuant to the Rating Agency Guidelines established by Moody's,
the Fund is required to maintain a certain discounted asset coverage. The
Fund has met these requirements since issuing the Preferred Stock.
The Fund is required to allocate long-term capital gain distributions and
other types of income proportionately to distributions made to holders of
shares of Common Stock and Preferred Stock. To the extent that distributions
are not paid from long-term capital gains, net investment income or net
short-term capital gains, they will represent a return of capital.
The Fund issued 79,701 shares of Common Stock as reinvestment of
distributions by Common Stockholders for the year ended December 31, 2002.
INVESTMENT ADVISORY AGREEMENT:
The Investment Advisory Agreement between Royce and the Fund provides for
fees to be paid at an annual rate of 1.0% of the Fund's average daily net
assets applicable to Common Stockholders plus the liquidation value of
Preferred Stock. Royce has voluntarily committed to waive the portion of its
investment advisory fee attributable to the Fund's Preferred Stock for any
month in which the Fund's average annual NAV total return since issuance of
the Preferred Stock fails to exceed the Preferred Stock's dividend rate. For
the six months ended June 30, 2003, the Fund accrued and paid Royce advisory
fees totaling $292,900, which is net of $99,177 voluntarily waived by Royce.
PURCHASES AND SALES OF INVESTMENT SECURITIES:
For the six months ended June 30, 2003, the cost of purchases and
proceeds from sales of investment securities, other than short-term
securities, amounted to $23,629,502 and $23,175,577, respectively.
PREFERRED STOCK PRESENTATION:
To reflect recent accounting guidance from the Securities and Exchange
Commission, the Statement of Assets and Liabilities has been modified to
present the liquidation value of Preferred Stock below Liabilities and above
Net Assets Applicable to Common Stockholders. As revised, Preferred Stock is
no longer included as a component of net assets of the Fund. Likewise, the
Statement of Operations, the Statement of Changes in Net Assets, and the
Financial Highlights have been revised to show distributions to Preferred
Stockholders as a component of the net increase/decrease in net assets
applicable to Common Stockholders resulting from investment operations. These
modifications do not change the amount of net assets applicable to Common
Stockholders, the net asset value per share of Common Stock, or the total
return per share of Common Stock.
48 | THE ROYCE FUNDS SEMIANNUAL REPORT 2003
ITEM 2: CODE(S) OF ETHICS - NOT APPLICABLE TO THIS AMENDED SEMI-ANNUAL REPORT.
ITEM 3: AUDIT COMMITTEE FINANCIAL EXPERT - NOT APPLICABLE TO THIS AMENDED
SEMI-ANNUAL REPORT.
ITEM 4: PRINCIPAL ACCOUNTANT FEES AND SERVICES - NOT APPLICABLE TO THIS AMENDED
SEMI-ANNUAL REPORT.
ITEM 5: AUDIT COMMITTEE OF LISTED REGISTRANTS. NOT APPLICABLE TO THIS AMENDED
SEMI-ANNUAL REPORT.
ITEM 6: RESERVED.
ITEM 7: DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES -
In June 2003, in response to rules adopted by the Commission, Royce
adopted written proxy voting policies and procedures (the "Proxy Voting
Procedures") for itself, the Fund, and all The Royce Funds and clients accounts
for which Royce is responsible for voting proxies. The Board of Directors of the
Fund has delegated all proxy voting decisions to Royce. In voting proxies, Royce
is guided by general fiduciary principles. Royce's goal is to act prudently,
solely in the best interest of the beneficial owners of the accounts it manages.
Royce attempts to consider all factors of its vote that could affect the value
of the investment and will vote proxies in the manner it believes will be
consistent with efforts to enhance and/or protect stockholder value.
Royce personnel are responsible for monitoring receipt of all proxies
and ensuring that proxies are received for all securities for which Royce has
proxy voting responsibility. Royce divides proxies into "regularly recurring"
and "non-regularly recurring" matters. Examples of regularly recurring matters
include non-contested elections of directors and non-contested approvals of
independent auditors. Regularly recurring matters are usually voted as
recommended by the issuer's board of directors or management. Non-regularly
recurring matters are brought to the attention of portfolio manager(s) for the
applicable account(s) and, after giving consideration to advisories provided by
an independent third party research firm, the portfolio manager(s) directs that
such matters be voted in a way that he believes should better protect or enhance
the value of the investment. If the portfolio manager determines that
information relating to a proxy requires additional analysis, is missing, or is
incomplete, the portfolio manager will give the proxy to an analyst or another
portfolio manager for review and analysis. Under certain circumstances, Royce
may vote against a proposal from the issuer's board of directors or management.
Royce's portfolio managers decide these issues on a case-by-case basis. A Royce
portfolio manager may, on occasion, decide to abstain from voting a proxy or a
specific proxy item when such person concludes that the potential benefit of
voting is outweighed by the cost or when it is not in the client's best interest
to vote.
In furtherance of Royce's goal to vote proxies in the best interests of
its clients, Royce follows specific procedures outlined in the Proxy Voting
Procedures to identify, assess and address material conflicts that may arise
between Royce's interests and those of its clients before voting proxies on
behalf of such clients. In the event such a material conflict of interest is
identified, the proxy will be voted by Royce in accordance with the
recommendation given by an independent third party research firm.
ITEM 8: RESERVED.
ITEM 9: CONTROLS AND PROCEDURES.
(a) Disclosure Controls and Procedures. The Principal Executive and Financial
Officers concluded that the Registrant's Disclosure Controls and Procedures are
effective based on their evaluation of the Disclosure Controls and Procedures as
of a date within 90 days of the filing date of this amended report.
(b) Internal Controls. There were no significant changes in Registrant's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
ITEM 10: EXHIBITS ATTACHED HERETO. (ATTACH CERTIFICATIONS AS EXHIBITS)
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ROYCE FOCUS TRUST, INC.
BY: /s/ Charles M. Royce
CHARLES M. ROYCE
PRESIDENT
Date: October 8, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this amended report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
ROYCE FOCUS TRUST, INC.
BY: /s/ Charles M. Royce
CHARLES M. ROYCE
PRESIDENT
Date: October 8, 2003
ROYCE FOCUS TRUST, INC.
BY: /s/ John D. Diederich
JOHN D. DIEDERICH
CHIEF FINANCIAL OFFICER
Date: October 8, 2003